I believe that in English law in order for any type of product liability to arise there has to exist a contract
Hence the need for legislation.
You're talking about warranty liability, which is the law already. There are a few other ways a person can owe someone for making a bad product. Some would require legislation.
Can someone who steals a product really hold the victim liable for its deficiencies?
Yes, under the theory of strict liability. I remember a (US) case in which an automobile manufacturer was held liable for a defect that damaged someone who stole the car. (He didn't steal it from the manufacturer, but the result would have been the same). The law holds people who make dangerous things responsible to the public (even evil people) for making them safe.
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